PYLE: Targeting the climate, hitting the economy instead

The EPA knows its emissions reductions won’t save the environment

By Tom Pyle - -
Wednesday, June 25, 2014

The Environmental Protection Agency (EPA) is lucky the Supreme Court only rules on legal questions and not whether the agency is spreading disinformation. When the court upheld earlier this week part of the agency’s greenhouse-gas regulations, the EPA trumpeted the decision as “a good day for those concerned with creating a better environment for future generations.”

The EPA made similar claims earlier this month when it announced its latest plans to mandate a reduction of carbon dioxide emissions by 30 percent. The agency’s administrator, Gina McCarthy, declared that this would protect “our families’ health and our kids’ future.” President Obama seconded this, saying the EPA’s new regulations “leave our children a safer and more stable world.”

The EPA’s climate-modeling system indicates that the new emissions mandates will have next-to-no effect on world temperatures. The model, named MAGICC by the agency, predicts that the rule will prevent a whopping 0.018 degrees Celsius of total warming between now and 2100. For comparison, a complete elimination of America’s carbon-dioxide emissions would still only stop 0.14 degrees of warming over the same period.

Both numbers are statistically insignificant, at least as far as “saving the world” is concerned. The same can’t be said about how the EPA rules will affect the economy. On that front, the effects would be quite significant — and disastrous would be a better word.

The best economic analysis of a plan similar to the EPA mandates was released by the Chamber of Commerce in late May. The chamber report assumes a 42 percent reduction in carbon-dioxide emissions, while the EPA claims its regulations will only require a 30 percent reduction from 2005 levels. The gap is almost surely smaller — the EPA did not mandate cuts from actual carbon-dioxide emission levels from 2005, but rather from hypothesized 2005 levels that might have occurred if states had taken the actions the EPA would have liked them to. In other words, the EPA is calling for reductions greater than the 30 percent — likely much closer to what the chamber’s study modeled.

The economic verdict isn’t good. The president declared that the EPA regulations would create “a more prosperous” future, but the chamber report foresees a future where Americans have less wealth, fewer jobs and higher bills.

You don’t have to be an economist to understand why. The EPA regulations hit natural gas- and coal-fired power plants — two of the cheapest energy sources in the country. In order to limit carbon-dioxide emissions from these plants, states will slap a “carbon tax” on carbon-dioxide emitters, in which they must pay a fee for every ton of carbon they emit, create a “cap and trade” system, where carbon-dioxide emitters purchase expensive permits that allow them to operate, or simply close the plants altogether. In most cases, states will also shift electricity generation to renewable energy sources, such as wind and solar power. These are all more expensive than the coal and natural gas they would replace.

In all of these scenarios, American families will pay the price — on everything. Electricity bills will be higher, both for individuals and businesses. Those businesses will then pass the higher costs back onto customers, leading to layoffs and higher prices on everyday goods and food. The poor, who spend a greater share of their money on electricity and food and have the least disposable income, will suffer the most. We have already seen these results in states such as New York and Colorado, where EPA-style policies are being implemented.

The problems start on the home front, according to the chamber report. According to its data, the average household’s real disposable income next year would decline by more than $200. By 2025, the losses would rise to nearly $400 a year.

These higher costs would also affect businesses, which use significantly more electricity than households. Their costs would increase by $289 billion between 2015 and 2030, causing them to lay off roughly 224,000 per year during that same period.

Taken together, the economy would lose more than $50 billion in economic output every year.

Since the chamber’s study is based on slightly different assumptions than EPA’s regulation, the real cost of the EPA’s plan may be slightly lower than these estimates. Yet the fiscal principles remains the same. Neither the economic nor the environmental data support Mr. Obama’s claim that our children will inherit a safer, healthier and wealthier world. The environment will be little different than it is today — but everyone will be poorer.